Get Rid Of The Entertainment Deduction

July 28, 1985|By Stephen Chapman, Tribune Media Services

To hear team owners tell it, President Reagan's tax plan could mean that sports-crazy Americans will soon face an acute shortage of athletic events. William Giles, president of the Philadelphia Phillies, reflects the prevailing wisdom when he predicts ''catastrophic'' effects.

The threat lies in the administration's proposal to end the tax deduction for business entertainment. A lot of companies spend good money to take clients to baseball or hockey games, writing the tickets off as a cost of business. Most of the professional leagues have grown dependent on these ticket sales: They provide 60 percent of hockey's gate receipts, 51 percent of basketball's and 46 percent of baseball's.

This is the classic example of a deduction that finances high living for the well-off at the expense of the average taxpayer. If you want to see a professional baseball game, you pay the full price. But if a corporate vice president wants to take a couple of business friends over to the ballpark for a pleasant afternoon away from the office, his company pays only part of the cost, with Uncle Sam effectively paying the rest. The entertainment deduction also helps to support such essential business costs as country-club memberships and theater outings.

The rationale for the deduction is that this kind of entertainment is an indispensable way of doing business. But capitalists who want to dicker can find a more conducive atmosphere than a hockey arena filled with screaming fans. For most of the people who get to do this kind of thing, the game represents personal pleasure, not business.

The rules on entertainment expenses illustrate their remoteness from actual work. As the Treasury Department explains, outings qualify for the deduction ''if they are directly preceded or followed by a substantial or bona fide business discussion. A business discussion may be considered substantial and bona fide even if it consumes less time than the associated entertainment and does not occur on the same day as the entertainment activity.''

The rules are not only generous but absurdly unenforceable. If someone takes you to a World Series game or a Bruce Springsteen concert and you somehow never get around to talking business, you're not likely to repay him by tipping off the IRS.

Of course, some legitimate business expenses, like office furnishings and company cars, commonly pay partly for personal consumption. But the impossibility of measuring and taxing that portion of the cost is no reason to give entertainment a pass. Here, the business value is incidental at best.

The real reason for entertainment expeditions is that they let the company compensate employees tax free. If you get an extra $100 in salary, it's taxed as income. If you get $100 worth of hockey tickets, to be used with a client, it's not.

Contrary to the warnings of club owners, ending this deduction will most likely mean lower ticket prices, not higher ones. The owners say that with lower demand for tickets, they'll have to charge fans more to keep profits up. So why is it that when the demand for oil or wheat or pet rocks declines, their suppliers have to settle for lower prices? If teams could increase their profits with higher prices, they would have raised them already.

Some teams, deprived of this help, no doubt will go under. But it's hard to see why a ballclub that can't lure fans to the ballpark should be bailed out by the American taxpayer.

Reagan's proposal merely recognizes the obvious fact that describing a trip to the ballpark as a business affair doesn't change its real character. People who have fun going to ballgames shouldn't have the additional fun of beating the tax man.